What is an estimated assessment and what should I do if I receive one?

When a profits tax return is not lodged by its due date (including any extended date), the Inland Revenue Department (IRD) may issue an estimated assessment using whatever information it has. These are often much higher than real profits.

What to do

1. Note the notice date. You have one month from the date of the notice of assessment to give written notice of objection (section 64). The IRD can extend this only where you were prevented by absence from Hong Kong, sickness or other reasonable cause.
2. File the return and accounts promptly. Include all the required documents and the tax computation.
3. Object in writing and state precisely why, for example "the assessable profits are HK$X as shown in the return".
4. Ask to hold over the tax. The IRD may stand over the tax subject to conditions, such as buying Tax Reserve Certificates for part of the disputed amount.
5. Pay what is due by the date on the notice, or apply for instalments. Tax not paid by the due date is in default and a 5% surcharge can apply to the balance.

Risks of leaving it: if the assessment becomes final, you are bound to pay it. Repeated estimated assessments can also lead to higher penalty percentages for late filing.

An estimated assessment does not replace the return; the IRD can still seek penalties for the late return.